First Deal Is A HUD. Help
I have a contract on a Hud property. My plan is to fix and sale. My bid was $44K and it needs about $10K to rehab. The after repair value would be $85K. My partner failed me. I am running out of time without a rehab loan and no money to put down (not even closing costs). Before I ask for an extension with Hud I need to know if it is worth it. My broker can get me a 100% stated loan and he suggests I buy the property and get another loan later to fix it up.
Questions:
1. Where can I get the money to rehab? Do I get a Heloc?
Is that a good idea?
2. What are my options besides a 20% cut from a hard money lender?
3. If this is my only option, is there a way to get around closing costs. I know everyone has to get paid. I was denied for a personal loan because of a high ratio. I have a 680 (lowest) credit score.
Please! I need your suggestions! I do not want to lose out and at the same time I do not want to get into something I can't get out of.[ Edited by missjohnson on Date 11/24/2003 ]
If you can get a HELOC for 60K or more, I would do that before I did anything else.
Excellent rates, flexibillity, tax deductable, the list goes on and on.
If you are going to use it again, I would get the line of credit established for the most you are comfortable with. Better to have too much money than not enough. If you find out later you should have taken out a larger HELOC you will have to pay all over again, with the exception of your appraisal if it is within a year of the last one.
I think you should walk away from this one and forfeit your earnest money deposit. Asking for an extension will just be a waste of your money -- you knew about the extension fee? -- if you are in no better financial posture in 15 days.
Why don't you have the financing now, when you submitted a lender's pre-approval letter with your bid?
I use my HELOC for acquisition and rehab, however, it took more time to put it in place than I thought or was told by the loan broker. My recollection is that it took 40+ days to get it in place.
Depending on your time constraints, hard money or finding a partner are two options if you are not going to walk from this one. The HELOC seems best if you can get sufficient money and enough time to put it in place.
If you can solve the closing cost problem you might get the 100% loan and initiate a HELOC for rehab. Keep in mind you are facing a holding period to get financing in place, rehab and sell.
I agree with Dave T..start stepping. Good Luck!!
Walking away isn't the best option. File for owner occupancy on the property THEN let the contract fall through. Show them a letter from a mortgage broker where you couldn't obtain financing (for whatever reason) and you will get your deposit back. Then walk away
-Chris
[addsig]
My last HELOC through my personal bank took 8 business days from start to finish. That included a new appraisal.
This is the one area where I think a bank is the right solution, they love HELOCs and are set up to do them quickly and cheaply.
Total cost for $150k line of credit was $650. I did get a discount of $150 on the title insurance, due to a reissuance.
Best of all it is interest only payments!! [ Edited by The-Rehabinator on Date 11/24/2003 ]
Quote:File for owner occupancy on the property THEN let the contract fall through. Show them a letter from a mortgage broker where you couldn't obtain financing (for whatever reason) and you will get your deposit back. Then walk away Chris,
I have a couple of issues with this advice. First, I believe the bid paperwork asks you to declare whether your offer is submitted as an owner-occupant or as an investor. Let's not open the door to charges of fraud by suggesting that missjohnson change her status when we know that to be untrue.
Secondly, last time I looked, only half of the deposit was refundable to an owner occupant in an uninsured sale with acceptable documentation. Since only $500 earnest money is at stake, I suggest that missjohnson consider this the cost of a lesson in foreclosure investing. Perhaps she will learn from this experience and be better prepared and better financed when she bids on the next HUD property.
Dave,
You are quite correct, it does make you declare if you are an investor or a OO. However, her RE agent can file the paperwork to change it from Investor to OO. If she decides to continue to persue this house, it will become easier to finance. The cost is: she would need to live there if she follows through. Also, she would get her full $1000 back if she can't finance the place.
I was in a similar situation as Miss Johnson a few months back. I put a contract on a HUD property, however, due to foundation problems we aren't able to get a loan. HUD is strictly opposed to doing any work on the property before close, and prefered to let the sale go than allow us to complete the work. To save the deposit, my RE agent changed it to OO (since I would be willing to live there if they found financing - the house was really nice and under contract for an excellent price), however, we still couldn't find a lender who would fund it with the foundation problems. We looked into getting a hard money lender for the home, however, they weren't will to go the loan without letting their own inspection team look at the house. Unfortunately, the turn around time was too long to be useful to us.
I did learn my first foreclosure lesson, next time I will head strait for the hard money. I disagree with your opinion that its fraud, and my $1000 in my bank account agrees
-Chris
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In response, these are the factors that held me back:
I am having a problem with getting in touch with my RE agent. She doesn't communicate well and she is not experienced in Huds. My agent also gave me misleading info about when to start financing on a Hud property.
My partner backed out.
Furthermore, the broker I was working with was sitting on my deal.
Question: Would I be able to apply for a Heloc now - before I actually own the property? Do you guys know any "reliable and experienced" RE agents in Chicago?
Also, if I walk away now - would you suggest I pursue another Hud in the future or motivated sellers?
[ Edited by missjohnson on Date 11/25/2003 ][ Edited by missjohnson on Date 11/25/2003 ]
If you are referring to opening a HELOC on the home you are purchasing, the answer is no. You may be able to find a company that would refinance or write a second after you close with no seasoning requirements, but that will not solve your cash problem. Also, you would have a hard time getting cash out of the property until it is repaired.
-Chris
[addsig]
I'm sorry, I thought you were referring to getting a HELOC on your personal residence not the property you are trying to buy.
Since a HELOC is a "Home Equity" loan, I think you need to look for a NOOLOC, "Non-owner occupied" line of credit.
Just kidding.
But as far as your bid of 44k is that net? Hud pays up to 5% to your realtor for commission, and another 5% towards closing costs right? That doesn't put you too far away.
Also, if you already have the 44k in place and just need the 10k for the rehab, 10k isn't really all that much money, if this is really going to net you 30k in profit, isn't there any creative ways you can come up with the rehab money? Credit cards, sell your car? Cash out some of an IRA?
I didn't do a thorough research of Hud Homes before I bid. You have to request for Hud to pay for closing costs when signing the contract. And of course, the realtor did not know either. So, the $44K is not including closing costs. My LO is trying to come up with ways to get around it. If that doesn't work, I might as well walk away. If he does come up with a solution I will use creative ways to pay for the rehabbing. Thanks for the advice!
Go to http://www.wonderfunding.com. They do hard money loans and your if your LTV is 65% of the appraised value, they will pay for everything. Look at some other hard money lenders that can fund quickly.
I wouldn't just walk away b/c things aren't going smoothly. That's how you learn. I say ride the horse to the end. If the numbers are good, you WILL find the money.
You pay interest only and they will pay for repairs as long as it doesn't exceed the 65 LTV. However, with your credit score ( a 680), there are a ton of hard money lenders that will fund rehab work. And the numbers look really good, so you shouldn't have problems obtaining rehab loan.
Dee[ Edited by DeeLewis on Date 11/28/2003 ]
Never give up! Don't let the bastards win!!! Z
7 days left to close: I found a partner who has been in the business for 10 years and says he may know someone that can invest their money for closing costs and rehab with a 90 day period to pay back. Since the work for the house appears to be minimal, my partner suggests we do the work ourselves. What do you think about this?[ Edited by missjohnson on Date 12/01/2003 ]
I would do the work myself only if I was doing this full time, and was an experienced contractor. Otherwise, you will probably be making a costly mistake. Unless you fall into the category I mentioned, find a licensed and insured contractor to do the work. With 10K in repairs, you are looking at about a week to a week and a half for the work. Then follow your exit strategy. Speaking of which, what is your exit strategy?
Quote:
On 2003-11-26 10:29, missjohnson wrote:
I didn't do a thorough research of Hud Homes before I bid. You have to request for Hud to pay for closing costs when signing the contract. And of course, the realtor did not know either.
Miss Johnson, I suggest you get a more knowledgeable realtor, because a realtor should know how to fill out a contract <shaking my head> Had it been done correctly, your contract would have had at least one, if not all the acceptable contingencies: financing, appraisal, inspection - and your realtor SHOULD have known to REQUEST seller paid closing costs in the contract. Geeezzz...
As for doing it yourself....well...if you know how and if you have the time. Did you have the property inspected? If there are no major problems, and it's just a matter of cleaning and painting, then I'd say go for it. Good luck to you![ Edited by makingaliving on Date 12/01/2003 ]
Yes. My exit strategy is to resale; on the high end at $90K.
I definitely need a new realtor. I agree!
Although my new partner has been rehabbing for 10 years, I do not know if I should leave all of the rehabbing decisions to him - Should I trust it leaving him with all decisions? Most likely not.
The major problems of the home include replacing the hot water tank, the bathroom (gut job), and water damage in the basement.
Based upon how much you have botched this transaction already, if your partner has been doing rehabs for 10 years and has a track record of making money, not only should you let him make each and every decision on this deal with you, you should tape record, video tape and transcribe everything he says so you can learn everything you can from him. If all you had to do was give him your percentage of the profits on this deal so you can learn from him, that would be cheap tuition.
Never underestimate the value of mentorship. What you learn from him will come back to you 100 fold over then next few years.
If he has been doing this for 10 years and you don't have faith in him to learn from him, then why would you even wed yourself to him financially and with liability on this deal?[ Edited by The-Rehabinator on Date 12/01/2003 ]
Missjohnson,
Thanks for posting this topic, and welcome to the world of REI !
Ok, I'm glad you may be getting some funds to begin the project. Also, look at the above tabs... Do you see the Lenders tab? Give that a whirl too.
Would I do the rehab myself? Yes.
Dry wall, tape, finish and painting are easy enough to learn as you go.
We hire out all plumbing and electrical. Roofs and landscaping we do ourselves, including felling trees.
I've learned much from this topic.
Thanks again,
OnTheWater
I will definitely keep you guys posted!
Miss Johnson,
I sent you a private message.
check to find out if you can assign the contract.....i'm not up on the hud "can and can'ts" but, it sounds like there is a profit margin for someone! write down the numbers from all those bandit signs that everyone is hanging or check your yellow pages...and see if you could make a few thou for your efforts.
makingaliving: I doubt it is her RE agent's fault. HUD has a special contract you use which you may not alter in any fashion or form. It even has to be filled out in a specific color ink (blue if memory serves). One of the few escape clauses in a HUD contract is failure to obtain financing, however, this only applies to owner occupied (not investment) properties.
missjohnson: If you have the skill necessary to complete the rehab and the time to complete it quickly, I would recommend you do it yourself. However, after reading the thread here I don't think you are very experienced. In this case, I would allow your experienced friend to handle the matter and contract out the work. The last thing you want to do is end up spending more time and money for a job that is sub-par, which keeps the home from selling.
investorkim: You can't assign a HUD contract. HUD is the anti-creative super non-motivated seller.
-Chris
[addsig]
You might consider negotiating with your agent, who should definitely know more. If you are buying a house where they are earning a 5% ez full commission, you could ask for a split or portion of that to help with closing costs. Too bad you didn't put in for up to 5% toward closing costs including loan costs - including up to 1% points for OO and FHA loan. Your agent should be doing something for 5% other than filling out a form. I'd ask for half or at least $1k from them to save to deal, or let it go. You can rebid on the same house next time, with a better agent, and negotiate a far better deal, putting in for the full 5% allowable costs. Just remember that it's the NET BID that counts, so your agent's commission is a big chunk. If you don't negotiate a split at least negotiate a far lower commission so that the net is as high as possible. I've been through this if you want to PM me.
My partner is considering two sources who will invest their money over a certain period of time with interest back.
And yes, I think a large part of the problem is related to the RE agent. It seems like after I signed the contract -she left the country. She was supposed to fax me the extension contract on Friday. I never got it. I page her and she calls me back a week later. She says she doesn't own a cell phone anymore and she is never in the office. Then, she tells me to call Golden Feather and ask for an extension and the whereabouts of my contract(s). I called Golden Feather Realty (Hud) last week and they told me that my agent received my original copy and she is supposed to give it to me. Oh, and I am not to call them.
Yesterday my partner calls another agent and he/she tells him "once we sign a contract with the agent, then we have to stick with her." Is this true? If I continue to deal with her, she is going to cause me to lose out.
[ Edited by missjohnson on Date 12/03/2003 ]
MissJohnson:
I'm from Chicago, I had similar problem, but even worse, so I searched the web for hard money lenders and I found a Hard Money lender from Chicago ZDE Investments, or just go to ****Must Reach Freshman Investor status before posting URL's*** get their number and ask for Becky. They give 66% of ARP. Becky saved me, aslo she is very experienced with HUD, I believe she is certified Hud real estate broker, so hopefully if is not too late she can save you also. Out of this topic, but if you are in Chicago or around area, do not ever, and I repeat do not ever buy any property from URB, or Village Sites. Same company different names, they will try to rip you off.
good luck,
keep in touch
Goce
**Please See My Profile**
Technically, it's correct that once you sign a contract, you're "stuck" with that agent. HOWEVER, if the agent is not doing what a good agent should do, go to her broker and complain. If that fails, go to the local association of Realtors and have them handle it. You said she doesn't have a cell phone anymore? Hmmm...poor money management perhaps? or maybe she quit being an agent. I can't imagine being an agent without the cell phone. How'd the old timers do it...lol.